A fundamental rule of business is never mix personal and business funds. This rule applies to credit. Business can be unpredictable, and you don’t want a slump to affect your personal credit.
2. Gain Access to Start-Up Capital.
Most businesses owners getting started need additional capital for normal business investments. Securing corporate credit is the way to get access to that capital.
3. Prepare for the Future.
Securing a line of credit is an important step for preparing for the future. A business owner needs to have the ability to seize market opportunities as they arise, and must make sure that he has the cash flow available for such a move. Establishing corporate credit secures a business owner’s ability to make important business decisions almost regardless of the day to day financial position of the company. Since corporate credit is based on history, it is important to start building credit from the beginning to prepare for such a possibility.
4. Establish Business Credibility.
A good credit rating is a feather in your business’ hat. Your business’ credit rating affects its value. A credit check is part of the due diligence process for a company looking to invest in or purchase a business. Also, a strong established credit rating gives you a good name with banks and creditors, which can only work to your benefit.
5. Maintain a Healthy Cash Flow.
No matter how successful a business, there are going to be ups and downs. To choose a random example, no one would ever accuse Dairy Queen of being an unsuccessful business. Yet as a business, they almost certainly see higher profits in the summer months than in the dead of winter. This is just an example to illustrate that no matter your success, there are factors beyond your control (time of year, health of the economy, etc.) that can affect your cash flow.
Having a line of credit or business loan can help you in times when cash flow isn’t as high as you’d like. You will probably still have financial needs and obligations; if you already have a business line of credit, you can meet them without worry and work on repaying your debt when your cash flow is stronger.
6. Protect Yourself and Your Investments
It’s a simple business policy: it’s always better to use other people’s money than to risk your own. If something goes wrong with your business and you have a credit problem, it may be difficult to repair. But it will NOT affect your personal finances or personal credit rating.
If, on the other hand, you’re using your personal nest egg or credit to finance your business and you encounter a problem, then not only have you lost your business, you’ve sacrificed your own financial security for years to come.
Many financial institutions will lend you business credit without the need for a personal guarantee. If you hear the words “personal guarantee,” you should run: that means you have to lay your own assets on the line to back your business investment.
7. Establish a Banking Relationship.
We don’t really have personal relationships with our banks these days, what with ATMs and internet billing. But in the business world, it’s still extremely important to have a close relationship with banks and lenders. Establishing a positive credit rating with one of these institutions goes a long way towards creating that relationship.